Lahore - Pakistan market has outperformed its Asian stock markets peers in terms of shares performance during first quarter of 2016. It outperformed Sri Lanka, which fell by 13 percent (in US$ terms) and also Vietnam and Bangladesh, which fell 2 percent (in US$ terms) and 5 percent (in US$ terms), respectively.
According to experts, continuous foreign selling has kept market under pressure. Foreigners net selling in 1Q2016 was US$100.6mn according to National Clearing Company Pakistan Limited (NCCPL) data. Foreigners have been net sellers (on monthly basis) since July 2015, however quantum in outgoing month was lowest since then. This led the KSE-100 index to rise by 5.6 percent in March 2016, which is highest monthly increase during last 5 months.
Asian stocks have shown a mixed picture as some Asian markets including Thailand and Indonesia increased in double digits by 12 percent and 11 percent respectively.  Further, even though MSCI FM index was down by 2.6 percent, MSCI Emerging Markets (EM) index was up 5.4 percent.
Volumes continued to remain dry during 1Q2016. Average daily volume in cash market was Rs7.4bn (US$71mn) last quarter.  This compares unfavorably with 2015 average daily volume of Rs11.4bn (US$111mn). Continued low volume is considered negative development in Pakistan especially for local traders. Range bound market and regulatory restrictions have affected market activity.
Though there has been some political noise at the local front, we don’t see it as a major cause of concern. Army operation especially in Karachi has resulted in snagging of militant wings of different political parties. After recent catastrophic event in Lahore, which led to multiple fatalities in a public park, army operation in Punjab has also been initiated to root out terrorist elements in the province.
Pakistan macroeconomic indicators continue to show improvement. As per recent quarterly report by State Bank of Pakistan (SBP), stable exchange rate, adequate foreign exchange reserves, low current account deficit and low inflation rate are leading indicators for a better economic environment. Further, concerns on external debt servicing have been annulled by both the SBP and Ministry of Finance as these are not more than US$6bn per annum till 2020.
Pakistan market PE has fallen from 8.7x at beginning of 2016 to 8.3x, at 20 percent discount from MSCI FM PE of 10.3x. Experts continue to believe that Pakistan Market’s potential inclusion in MSCI EM will be a key trigger that can potentially take the local market’s PE in the 9.0-9.5x range.
Saad Hashemy of Topline Securities, stated that for the time being global markets, crude oil price trend and foreign activity will remain a key driver for Pakistan market. Other factors to look at are 1) pace of economic recovery 2) currency devaluation and 3) political scenario.
FXTM Market Analyst Lukman Otunuga, in his write-up under the subject ‘The Rhythm of the Markets’ states that the markets march to their own drumbeat and have their own rhythm and rhyme. Every serious trader can benefit from learning how the ` markets move in specific, repetitive, sometimes complex, patterns. “Market opens in London can trigger the most peaks and valleys for the Pound Sterling, for example. Tracking the distinct rhythm at market opens is a key part of understanding momentum and volatility. The second aspect is the time zone in which a trader is operating. Each currency, stock and commodity has its ‘home’ time zone; the Yen in the Asian time zone; the USD during the US trading session; or the Euro during the European session. Each half of a currency pair reacts more strongly during its ‘home’ zone trading session, making this another part of the market’s rhythm.”
Lukman Otunuga observed that the US Eastern Time crosses over between the European and US trading sessions, making it a faster buy-sell rhythm for the EURUSD. This is when New York wakes up and traders take their positions, often cuing from what happened earlier in the trading day. He added that other assets like stocks and indices tend to peak or valley during their home trading sessions. The German DAX sees the most action during the European trading session; while the Nikkei moves according to buy-sell action during the Tokyo trading session. Local traders are the main drivers of the peaks and valleys seen by stocks and indices throughout the trading day in each time zone.
FXTM Market Analyst views that the end of each of the four trading time zones may be slower than the beginning, but it’s no less important to check your charts to see if the rhythm is holding steady or whether there are signs of it picking up again. This change could come from technical factors or from unexpected market news, like one of the massive investment houses moving assets around. Measuring the time between peaks and valleys goes a long way in establishing the market’s daily groove.
He added that price trends don’t tend to happen in isolation from other market shapers like time zones, they move in harmony with each other, so it’s worth watching ‘the whole’ chart rather than just one indicator.